Abstract
This study empirically investigates the simultaneous association between the quality of environmental performance (EP) and financial performance of firms selected from three Asian countries—Japan, South Korea, and India. The content analysis technique based on a four-point scale was used to measure the quality of EP, whereas financial performance was measured based on the market-to-book ratio. Employing system generalized method of moments and fixed effects regression model in a system of two-equation model, the study finds that EP has a positive impact on financial performance. Similarly, the financial performance has a positive influence on the quality of EP. The findings of the study indicate that a firm can enhance its overall financial performance by improving its EP. This implies that firms not only improve their economic performance through environmentally responsible business practices, but also help in fulfilling some of the sustainable development goals of the United Nation’s 2030 development agenda.
Highlights
The purpose of this study is to investigate the association between the quality of environmental performance (EP) and financial performance of firms from three Asian countries—Japan, South Korea, and India
It is imperative to note that the minimum value of market to book ratio (MBR) of Japan is very close to the mean value of MBR for South Korea and India
The observed values of skewness in the cases of Japan and South Korea demonstrate that the distribution of MBR is not far from symmetry, whereas it is more skewed in the case of India
Summary
The purpose of this study is to investigate the association between the quality of environmental performance (EP) and financial performance of firms from three Asian countries—Japan, South Korea, and India. The standard new classical theory states that improvement in EP is associated with an increase in cost and a decrease in net marginal benefits, because it involves significant investment and Simultaneous Association between Quality of Corporate Environmental Performance and Financial Performance modification of existing processes in order to reduce pollution and energy consumption (Horvathova, 2010; Walley & Whitehead, 1994) This is consistent with the “cost-concern school” and negative “traditionalist,” where it is said that environmental improvement is concerned with an increased cost resulting in decreased earnings and lower market value (Hassel et al, 2005). A number of researchers observe negative association between the EP and financial performance (Cordeiro & Sarkis, 1997; Freedman & Jaggi, 1992; Hassel et al, 2005; Ho & Taylor, 2007; Smith et al, 2007)
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